Poverty and labor market policies in Croatia

Vedran Šošić, Croatian National Bank, Zagreb, Croatia

AbstractThis paper compares indicators of the Croatian labor market and implemented policies with indicators and policies in other countries of Central and Eastern Europe. Although unemployment and long-term unemployment (which latter is particularly correlated with poverty in the transition countries) do not in Croatia depart from the range in which other transition countries are positioned, still they are above their average, which is connected with the somewhat less flexible nature of the Croatian labor market. New findings on the effects of labor market policies in the transition countries indicate that the process of the reform of the institutional framework through which in the last few years the restrictiveness of Croatian employment protection legislation has been reduced might work in the direction of reducing overall and long-term unemployment. The paper suggests that it is possible to improve the effectiveness of the application of active policy measures. Furthermore, a better compensation for a reduction in the restrictiveness of the regulations would probably be an increase in average unemployment benefits rather than an extension of their duration, while greater labor market flexibility, resulting from the reforms, should contribute to a greater coverage of unemployed persons. The expected reduction of overall and long-term unemployment under the influence of the new institutional framework, in spite of the possible emergence of low-paid and insecure jobs, might alleviate the problem of poverty, because unemployment and, especially, long-term unemployment are among the prime causes of poverty in the transition countries.